Blacklisting - Definition and its importance

Payments Learning Resources

Blacklisting - Definition and its importance

Looking for a blacklisting definition as it relates to those operating an ecommerce business?

Blacklisting can be defined as the recording of customers who are demonstrating suspicious transaction practices or have caused trouble through fraudulent transactions in the past.

Blacklisting definition as it relates to e-payment

Those identified as suspicious are then tracked via the use of a program designed to analyze behavior and are compiled into a database, against which each transaction is checked prior to being approved by the payment processor.

Every reputable merchant has the responsibility of protecting their customers and their business from fraud and that is what the blacklisting definition strongly refers to. In this article we will expand on the risk that electronic payments entail and the vital role that blacklisting plays in reducing the risk associated with e-commerce transactions.

The risk of e-payment fraud

a triangle street sign with an exclamation point and fraud written within

Card-not-present transactions (CNP) are inherently at high risk of fraud. According to the latest oversight report on card fraud by the European Central Bank, the total value of fraudulent transactions conducted using cards issued within SEPA, and acquired worldwide, amounted to EUR1.8 billion in 2016. 73% of which resulting from CNP payments, i.e. payments via the internet, post or telephone.

Online payments enable merchants to expand their activities and customer database to a worldwide scale. However, payment fraud is one of the main risks that online merchants should monitor and eliminate in order to create a secure payment environment for their business and customers, and to avoid the financial losses that can result from fraud.

The growth of the e-commerce industry is leading to an increase in electronic payment fraud, as online fraudsters create innovative tactics to illegally access personal data and bank details. Fraudulent activities that affect the payment processing of online businesses include data breaches, ‘phishing’ scams, identity theft, and friendly fraud. With the use of fraud management

tools, an online business can add an additional security layer to its payment processing systems and eliminate the risk of a data breach and unauthorized purchases.

How does customer blacklisting work?

logo within a black outline that says blacklisted

A blacklisting system identifies and excludes suspicious customers based on specific criteria.

This criteria includes:

  • Region
  • Country
  • IP address
  • Credit card details
  • Email address
  • And much more

When a customer gets blacklisted by the system, any transaction they attempt to make will be rejected. For instance, when a customer is on a business’ credit card blacklist, their purchase will be rejected when they use a blacklisted credit card.

All rejected customers are listed on a database and the system automatically cancels any transaction attempt made from them. This way your business is protected against fraudsters and any potential financial losses that might occur due to fraudulent transactions.

As a merchant you can choose from a wide variety of fraud screening software programs that help in creating your customer blacklist. Powercash21 through its gateway uses both internal and external blacklisting databases to reject suspicious transactions from prior offenders, offering an additional layer of fraud prevention protecting its merchants from untrustworthy clients.

The major benefits of blacklisting

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A major benefit of blacklisting suspicious customers is the prevention of financial loss that comes with chargeback disputes and fraudulent transactions. Indeed, dealing with disputed credit card transactions takes away precious resources and lost disputes lead to further financial losses. The merchant’s liability for accepting a fraudulent transaction in a CNP environment is far greater, as the merchant becomes responsible or refunding the customer in the case of a fraudulent transaction. The total cost to the merchant is much higher than the value of the transaction itself, since the merchant has to refund the scammed customer but also suffers losses from the product that was shipped.

Merchants who fail to manage fraud effectively are also subject to additional fees by their acquiring bank to process chargebacks and might be penalized with higher transaction processing fees. If fraud ratios become too high, the merchant’s ability to accept credit cards is at stake, as their merchant account can be shut down by their acquirer. It should be noted that schemes like VISA and MasterCard also compile blacklists on a merchant level.

Credit card acquirers have the capacity to report merchants for several reasons, including those who consistently process a high ratio of fraudulent transaction. Before an acquirer boards a merchant, they check the merchant’s credibility based on their prior processing history with the schemes. One such check is against the scheme databases. Mastercard maintains the MATCH file (Member Alert to Control High-Risk) and the Visa equivalent is VMAS (Visa Merchant Alert Services).

As a merchant collecting payment online, it is important that you manage the risk aspect of your business and minimize the potential of fraud, something that payment gateway providers such as Powercash21 can support you with through their blacklisting.

Being reported on VMAS and MATCH, indicates that as a merchant, you have poor management of your payment function, and makes it very difficult to find an acquirer that will accept you and enable you to process credit card payments through your online store.

If you choose to partner with a reliable acquirer, like Powercash21, you can benefit from a payment gateway which is equipped with the latest fraud prevention tools and is certified according to the PCI DSS standards. By doing so, you can rely on our technology for payments processing and offer your customers a highly secure payment experience.

Protect against the risk of fraud with blacklisting

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This article has provided a common blacklisting definition and illustrated the importance of safe- guarding against fraud using comprehensive strategies designed to identify potential suspicious activity. It is absolutely essential that any online business that uses digital payments makes every possible effort to protect against fraud. One effective way to achieve this is by incorporating blacklisting strategies. Doing so will not only help identify potential fraud cases but will also help enhance the reputation of your company.

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